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Limit on direct deposit of refunds will go into effect in 2015

In its latest attempt to fight tax refund fraud, the IRS said that,
beginning in January 2015, it will impose a limit of three electronic
direct deposits of tax refunds into a single financial account or
prepaid debit card. Taxpayers who exceed the limit will receive the
fourth and subsequent refunds in a paper check instead of a direct
deposit.

Taxpayers who request more than three direct deposits to one account
will receive a notice of the change, be told they can expect a refund
check in about four weeks, and be able to track the status of the
refund on the IRS’s “Where’s My
Refund?” site.

The new limit is intended to prevent criminals from easily obtaining
multiple refunds. It is also intended to stop tax return preparers
from obtaining payment for their tax return preparation services by
depositing all or part of a taxpayer’s refund into the preparer’s own
bank account.

In 2012, the Treasury Inspector General for Tax Administration
recommended that the IRS limit the number of refunds that can be
deposited in the same account and presented evidence that some
accounts were receiving large numbers of deposits that the IRS had not
detected (TIGTA
Rep’t No. 2012-42-080). The IRS at that time expressed a concern
about the effect a direct-deposit limit would have on taxpayers with
legitimate multiple-person accounts but agreed to work with Treasury’s
Financial Management Service (now the Bureau of the Fiscal Service) to
determine whether limits were feasible.

In announcing the change, the IRS pointed out that direct deposits
must be made to accounts bearing the taxpayer’s name and that tax
preparers are not permitted to obtain payment of their fees by
submitting a joint Form 8888, Allocation of
Refund (Including Savings Bond Purchases), to split the
refund with taxpayers and are also prohibited from opening joint bank
accounts with taxpayers. Preparers who do so are subject to IRS
sanctions.

The IRS believes most taxpayers will not be affected by the new rule,
but acknowledges that a few will, such as those who may have a single
family bank account into which all of the family members’ refunds are
deposited. These taxpayers will have to make other arrangements or
expect to receive paper checks.

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